Suzano S.A.'s (BVMF:SUZB3) P/S Still Appears To Be Reasonable

When you see that almost half of the companies in the Forestry industry in Brazil have price-to-sales ratios (or "P/S") below 0.5x, Suzano S.A. (BVMF:SUZB3) looks to be giving off some sell signals with its 1.4x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Suzano

How Has Suzano Performed Recently?

With revenue growth that's superior to most other companies of late, Suzano has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Suzano.

Do Revenue Forecasts Match The High P/S Ratio?

Suzano's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 19%. As a result, it also grew revenue by 16% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 8.7% per year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 5.1% each year, which is noticeably less attractive.

With this information, we can see why Suzano is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Suzano's P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Suzano maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Forestry industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Suzano that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.